Investor purchases a call option on the XYZ partnership with a strike price of $50 million and simultaneously sells a put option on the XYZ partnership with a strike price of $50 million. The purchase price of the call was $4 million and the sales price of the put was $3 million. Both options expire in exactly 5 years. 5 years from now (2022), when the value of the partnership underlying the options is $90 million, the investor exercises the call option. If the investor owned the underlying partnership for the 5 years, $3 million of long-term gain would have flowed through to the investor. The investor sells the partnership in 2023, more than 1 year after the call was exercised, for $95 million and no income or loss flowed through to the investor from the partnership while the investor owned the partnership.

a. How much gain or loss does the investor recognize in 2022? 2023?

b. What is the nature of the gain or loss in each year?